Tax implications of inherited property in India can be complex yet manageable when you know the rules. Whether you receive a house, apartment or plot of land, you must understand when tax applies and how to manage it smartly. Let’s unpack what you need to know about inherited property tax, property acquisition cost, and tax-saving options.
No “inheritance tax” at the time of transfer:
In India, there is no tax simply because you inherit a property. The so-called inheritance tax or estate duty was abolished decades ago. Therefore, when you receive property through a will or succession you typically do not owe any tax immediately.you typically do not owe any tax immediately. However, other costs may still apply such as stamp duty and registration when the title is transferred. In addition, just inheriting the asset doesn’t absolve you from future tax obligations.
Tax on income generated from inherited property:
Once the property is transferred into your name, any income it generates becomes taxable. For example, if you rent out the inherited house you must include this under “income from house property”. Moreover, if you inherit investments alongside real estate and they yield dividends or interest, you pay tax as per your slab.
Hence, the tax implications of inherited property in India aren’t only about sale-time—they also include income over time.
Capital gains tax when selling inherited property:
The biggest tax event for inherited real estate often arises when you sell it. The capital gains tax rules you must apply depend on how long the original owner held the asset and when you sell it. Here are key points:
- The cost of acquisition taken for you is the cost incurred by the original owner.
- Holding period: You include the predecessor’s holding period too. So, if the deceased held the property for 10 years and you hold it for 1 year, your total basis is 11 years, which typically makes it a long-term capital asset.
- For properties sold after 23 July 2024: If the property is held more than 24 months, long-term capital gains (LTCG) are taxed at 12.5% without indexation, or 20% with indexation—whichever is beneficial if the property was originally purchased before that date.
- If sale happens within two years of acquisition, it is short-term capital gains (STCG) and taxed at your slab rate.
- For example: Your inherited property was acquired decades ago; when you sell, you may fall under LTCG regime rather than STCG.
Special considerations for NRIs, exemptions and planning:
If you are a non-resident Indian (NRI) inheriting property in India, the rules are broadly similar but with additional compliance. There is still no inheritance tax, but when you sell you may face TDS (tax deducted at source) and need to follow foreign remittance rules. For example, an NRI selling inherited property may have TDS at 12.5% on sale proceeds and must submit Form 15CA/15CB for repatriation. In addition:
- You can claim exemptions under Section 54/54F if you reinvest sale proceeds in another residential property or eligible assets.
- Proper documentation and valuer’s report can reduce taxable gains, especially for older property where market value as at 1 April 2001 is used.
- In states the stamp duty on transferring inherited property must still be paid when registration happens, so budget for that too.
Conclusion:
The tax implications of inherited property are complex but don’t need to be overwhelming. While you don’t pay tax when you inherit, you will face tax on any rental income and when you sell the asset. With careful planning—understanding cost basis, holding period, reinvestment options and compliance—you can manage tax efficiently. Explore more financial insights now!
– Ketaki Dandekar (Team Arthology)
Read more about Tax Implications of Inherited Property here – https://cleartax.in/inheritance